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Successful US$4.5bil bonds and sukuk issue by Petronas to lead the way

PETALING JAYA: The successful issuance of US$4.5bil conventional bonds and sukuk by Petroliam Nasional Bhd (Petronas) could see large companies tapping the dollar bond market.

Analysts said large companies with high enough credit ratings and were well-known internationally would attract sufficient interest.

“Investors are still picky and concerned. They are picking well-established names and Petronas is one of them,” said Malaysian Rating Corp Bhd vice-president of fixed income research Wan Murezani Wan Mohamad.

“The concern right now is for capital preservation.’’

Petronas’ US$1.5bil sukuk and US$3bil conventional bonds made their debut on Bursa Malaysia and Labuan International Financial Exchange (LFX) respectively on Aug 14. Both securities have a tenure of five and 10 years respectively.

The bonds by Petronas were the largest issuance in Asia over the past five years and the second largest in Asian history. The size of the offering was increased due to high demand. The order book of US$19bil was the largest reported order book ever for an Asian transaction.

The money raised for Petronas was to fund its capital expenditure and operations.

Petronas sold US$4.5bil of bonds at a yield of 162.5 basis points above US treasuries.

Liquidity in the global markets continue to rise on historical low interest rates and huge stimulus programmes initiated by governments to lift economies from a terrible recession that has gripped much of the world.

“As for ringgit-denominated bonds, demand is skewing to AA and above,’’ said Wan Murezani.

A fixed income analyst with a local investment bank said Petronas managed to raise a significant amount of money cheaply with the bond issue.

Although spreads have gone up recently, the price of Petronas’ dollar bonds has also risen.

The increase in spreads was explained by US treasuries rising at a faster rate than the Petronas bonds.

Analysts said that when a giant company such as Petronas made such a move to raise dollar-denominated bonds, it opened the doors for others to follow suit.

However, there is a slight caveat as there are not many companies in the country that have as strong a credit rating.

Furthermore, the deep and liquid ringgit bond market has been sufficient for many companies to raise their money.

U.S. Dollar: Another Piece of the Puzzle?Individual investors can be wrong about a market trend. But countries?

Monday, Sept. 14, was a quiet day in the markets. Stocks were mostly flat, so were currencies. But it's precisely such quiet moments when experienced forex traders know to pay attention.Unless you're a financial professional with a keen interest in international bond markets, you probably didn't even notice an obscure news item from Germany last week. "Germany Plans First Sale of Dollar Bonds Since 2005," said a Sept.10 Bloomberg.com headline.

What's the big deal? Well, for one, Germany is a euro country, and "they don’t sell dollar bonds so often." In fact, Germany has done this only once before, in 2005. Now they're doing it again to "appeal to a wider range of investors, including money managers in the U.S. that don’t want to take on foreign-exchange risk."Why is Germany doing it now? “This is simply taking advantage of the market conditions,” said one market strategist. And that is the key phrase in this entire story, says Jim Martens, the editor of Elliott Wave International's intensive Currency Specialty Service.

As Elliotticians, we know that news doesn't create long-term trends. So for us at EWI, what a story says is less interesting than its timing. And here's what Jim Martens had to say about the timing of Germany's decision:"'Taking advantage of the market conditions,' in this case, means that Germany is betting on the dollar's continued decline. They hope that when these dollar-denominated bonds mature, they will pay back in dollars worth less then when they borrow. But this is precisely the wrong moment to do it, because everyone is on the bearish dollar bandwagon right now.

"Remember, the Daily Sentiment Index numbers have been showing USD bulls in single digits. Also, my subscribers know that we can count five waves down in the Dollar Index charts. Selling is becoming exhausted. When there is no one left to sell, the only way for the market to go is UP. Germany is riding the dollar downtrend when instead they should borrow in euros (which have more purchasing power now) and hope to repay with cheaper euros later."We're not saying the bottom is in for the buck just yet. But when it finally rises -- and it remains our view -- Germany will have to pay back with dollars worth more than when they received the funds. Interest + inflated dollar equals more expensive debt -- the opposite of what they are hoping to accomplish with these dollar-denominated bonds."

Wave patterns are like beautiful women, classic cars and great art – you know them when you see them.

EWI analyst Jeffrey Kennedy drives this point home during his live Elliott wave trading tutorial. It's my favorite of his tips for trading with Elliott waves.

"Trade the pattern not the count," Jeffrey says.

If you don't recognize a pattern at a glance, don't trade it – plain and simple. After all, your wave count can be wrong; the pattern cannot.

Does that mean you must know the exact wave count at a glance, as well? No. Simply spotting a pattern you recognize is where you should start.

Jeffrey scans hundreds of charts, clicking through them one by one, spending mere seconds with each. If he doesn't spot a pattern he recognizes, a click of his mouse takes him to another potential opportunity.Does price action look extended or choppy? Is it trading in a channel? Is it forming a wedge or triangle shape? These are some of the signals Jeffrey's looking for. Each could help him identify – at the quickest of glances – whether price action is impulsive or corrective. This is the first critical step, Jeffrey says, to spotting high-confidence, Elliott wave trade setups.

That brings us to the following chart. Do you see a pattern you recognize? I do.

Look at the downward price action; the moves look decisive, almost in straight lines like impulse waves. Now look at the upward moves; they look indecisive and choppy like corrections. There's also one down move that is clearly longer than the others – that's almost certainly a third wave of some degree.

At just a glance, here are a few things we can determine:

* This is a bearish market pattern, because downward impulses are interrupted by upward corrections. * The price action from September to November seems to be a pretty clear wave 3 down, followed by waves 4 up then 5 down, completing what appears to be a larger degree wave 1 in early March. * Wave 2 follows wave 1, so the upward move starting in early March is most likely a larger degree wave 2. * Wave 3 follows wave 2, so that's what we can expect next. * Wave 3 is never the shortest and often the longest of all five waves, so we can expect the next impulse move to take prices to new lows.

You see, with just a quick glance, we've put a finger on the pulse of the market. Negative psychology pulls prices down, and brief reversals of mood result in upward corrections – this appears to be a long-term bear market.

If you can gain this much insight simply by glancing at a chart, just think of what else you can glean by spending more time with it. Look at this pattern within a longer time frame, and you can determine the degree of trend (this one appears to be primary). Formulate Fibonacci price and time targets, and you can be confident about when and where prices will most likely turn.

There are literally hundreds of things you can do with a good chart, but none of them mean much unless you can first identify a pattern you recognize.